It was last year that I was duped online by a certain website named Fashionershop.com. The website has ceased existence ever since. This website listed lots of costly products online for a “sale”, and the sale price was unimaginable. A Rs. 4000/- watch for just Rs. 799/-!! Oh how did I fall for that. I got blinded to the fact that this couldn’t be economically possible but the website made tall claims of manufacturer warranty and such. Later I didn’t receive the watch that goes without saying. I check the regular forums online for any complaints about this guy and found a lot of people in my position. I investigated further and found the details of the person who had registered this website and communicated him via multiple email. No response. I even thought of raising a complaint to cyber cell but that would have to be done in Bangalore as the seller was registered in Bangalore.
I finally lost steam. I knew that it could be a waste of resources to pursue this matter further.
The seller happily pocketed Rs. 799/- belonging to me. And I assume various amounts belonging lots of other online shoppers if he has not yet been brought to justice.
The business the seller was doing online was actually not of selling any product. He was actually banking on the fact that even after the scam, given some time, people would forget and leave him alone. For him it was a risk worth taking. His risk paid off.
A new company called as ringing bells sure does ring some alarm bells. No one knew who they were as opposed to flipkart which started small and rose to fame step by step. Or Amazon for that matter which was already flourishing worldwide and shopaholics in India were praying for its arrival. Ringing Bells was registered in 2015. As a matter of fact, the domain name freedom251.com was registered on 10th February 2016.They do not have any import listings. They do not have any manufacturing plant as yet. They do not have any previous track record. Yet they claim to be able to sell a phone which would be worth about Rs. 2500/- for just Rs. 251/-!! Nothing adds up. They claim that they can reduce manufacturing cost by sourcing parts from India. Well, Samsung, Motorola, LG, HTC, Sony, or for that matter, Micromax didn’t dig deep enough in to the manufacturing industry of India to locate the manufacturers of such parts in India itself. Or the case could be that there aren’t manufacturers in India(which I think is the correct scenario). Then how is this all possible?
For a start, reports in media point out that the phones used during the launch event were actually some Adcom phones with the brand name covered using cheap whitener. Bells start ringing. Then their website crashes thus pointing towards it being hosted on a cheap hosting account, similar to the one which I use for this blog. The shopping cart doesn’t direct to the payment gateway which means that before the launch; even the testing was not done properly. Then they use the phrase “Economics of Scale” but fail to fully explain how it works because for economics of scale to work, the production cost should come down. But the material cost itself is said to be more than Rs. 1500/- as per few analysts. So if that’s not coming down then their losses will mount in proportion to the economics of scale.
Nothing adds up here.
If I had been the promoter of such company where the business model would not work but I still would want to launch a product with a fanfare, I would actually be thinking on two lines
A . I get enough publicity for this product so that I am able to get orders for about a 10,00,000 phones. Which comes to about 2.5 crore rupees. Put it in a bank for a term of 4 months. Effectively I could get 2.5-3% interest. After 4 months, buy a few re-branded phones, deliver to few customers (say about 100) and then declare manufacturing difficulties or any other excuse which is digestible. Return all the money without interest(I would take care to put a clause in terms and conditions that any refund would be without interest). Everyone is happy. The customers who got a Rs. 3000/- phone for Rs. 251/-(comes to Rs. 3,00,000/-). The other customers got back their money. I got to keep the remaining of interest minus income tax on interest. I could also claim deduction on loss in business which was generated through sale of rs. 3000/- phone for Rs. 251.
So here we go:
Amount collected = 10,00,000 * 251 = 25,10,00,000
Interest Collected in 4 months(assuming 3 % for the entire period) = +75,30,000
Loss on sale = (3000 – 251) * 100 = 689999
Tax on income = 75,30,000 * 0.3 = -2052000
Refund = 9,99,000 * 251 = 250749000
Miscellaneous expenditures ( Fanfare Launch and website maintenance) = 5,00,000
Leftovers = 4500000(Truly “leftovers” without any “wrong doings” for which the government is currently on watch)
Now that’s Economics of Scale
B. I publicize with so much hype that my website gets million of hit per month. I display one product for few months but prevent booking from going through (only random bookings allowed). People keep on coming hoping that they would finally be able to book (heck they are trying to buy a smartphone for a steal). Meanwhile I sell my webspace for advertisements and start earning. I will try to figure out whether I would want to sell something else for some real money. I can always refund the booking amount fully.
Though this may not be my preferred business model, this might be one line of thinking
No matter what their business model be, they sure got their share of publicity. They are capitalizing on economics of scale in some way or the other.
Couple of day back I was talking with my brother and his friend about getting in to some kind of business. I revealed to him something I had been thinking about for quite some time. India is a country of more than a billion people. If you could get 1 rupee from each of them by some way, now that would be some business. It’s a land of mass scale everything and you just need to know how to capitalize. Some do it by duping but there are always clean ways to do it.
If you could extract(and I mean by fair means) Rs 1000/- from 1000 people per month it would amount to Rs. 10,00,000/- income per months. But it may be a bit difficult since you would need prior exposure of your credibility. So toning it down, if you could extract Rs. 100 from 10000 people per month, again same income and lesser need of credibility but you would need better marketing. Now if you go a notch down and wriggle Rs. 10 from 1,00,000 people per month, again it would earn you same amount but with much larger need of marketing. The person giving out the money would not be polishing his shoe one day, that’s all he is spending. An on an on can the calculation go.
Simple Arithmetic. 1 Billion people* 1 Rs = 1 Billion Rupees.
So a person, who understands this arithmetic and knows how to apply it, may have wasted all his years of education which taught all the complex stuff of life. Gravity is there to live and so are the magnetic waves. Calculus has made life complex for me during exams. And if you are in to the business of making money, you do not need to know all these. These are just the things which are “nice to know”. If you want to start something in the line of business, you need to capitalize on Economics of Scale.
And if you are in India, you have a Billion and a quarter plus opportunities.